India’s largest initial public offering this year, of Bharti Infratel Ltd., opened for subscription by individual investors on Tuesday. But should you buy?

Several Indian brokerages seem to think so, though they would prefer a lower share price.

Bharti Infratel, a unit of mobile giant Bharti Airtel, builds, owns, leases and operates telecom towers and related infrastructure for mobile service providers. On Monday, the firm raised around $119 million from anchor investors, at an average price of 230 rupees.

Individuals can apply for the IPO until Dec 14. The company plans to sell around 190 million shares, priced between 210 rupees and 240 rupees ($ 4.4) each, to raise around $830 million. Individual investors will get a discount of 10 rupees a share over the issue price, which will be decided before the shares are listed on both the Bombay Stock Exchange and Delhi’s National Stock Exchange.

Part of the funds raised by Bharti Infratel will go to pay four of its private equity investors.

Several brokers are advising their clients to apply for Bharti Infratel stock, mainly on the back of its leading position in its industry.

Bharti Infratel currently operates 34,220 telecom towers, which are rented by mobile phone companies to broadcast mobile signals. Plus, Bharti Infratel owns a 42% stake in Indus Towers Ltd., which operates an additional 110,561 towers. Between the two of them, these companies have more than one-third of the market share in the telecom tower business.

Bharti Infratel’s main competitors are GTL Infrastructure, which operates 33,000 towers, and Viom Network with 42,000 towers. But Infratel’s success from here on is far from guaranteed. It faces regulatory hurdles, including a possible move by India’s telecom department to charge license fees on tower companies.

Such fees, if implemented, could hurt the profitability of Bharti Infratel and its peers. Profits would also be hit if diesel prices rise, because Bharti Infratel relies heavily on diesel to run its towers.

Here is what brokerages are advising clients:

Religare Institutional Research: BUY

This brokerage said that investing in a tower company is a better way to have exposure to the Indian telecom market than investing in mobile operators. These tower companies have long-term contracts with clients, typically for 10 years, which ensures a steady cash flow. Religare noted that Bharti Infratel counts India’s top mobile phone providers, including Bharti, as its clients.

However, in the near term, the company faces risks. For instance, it plans to expand into other emerging countries, which can be a costly proposition, said the Religare research note. The brokerage suggested applying for the IPO at the lower to mid-end of the price band.

Angel Broking: AVOID

This broker noted that Bharti Infratel’s performance would be hit by factors affecting the broader mobile phone industry, which has lately been mired in several regulatory issues. Earlier this year, India’s Supreme Court revoked the licenses of several mobile phone providers, which caused some companies to shut down or scale back their operations.

These adverse industry conditions and increased cost pressure on customers may result in Bharti Infratel having to decrease the amount it charges to rent out its towers, and ultimately hurt its profitability, Angel said in its research note. It added that the current IPO price is too high.

IndiaNivesh: BUY

The high cost of setting up towers acts as a hindrance to new entrants, and this benefits existing players like Bharti Infratel, said a research note from Mumbai broker IndiaNivesh.

However, the company’s growth prospects are unclear, it added. India already has a high penetration of wireless telecom services, with 78% of the population getting mobile services. For further growth, mobile phone companies have to find new customers in rural areas, who pay fewer fees and are typically less profitable.

Thus, the growth avenues of mobile providers, and ultimately telecom tower firms, could be limited. IndiaNivesh recommends applying for the IPO at lower end of the price band.

Nirmal Bang: BUY

This broker noted that Bharti Infratel could expand its client base over the next several years, as telecom companies increasingly turn to renting towers throughout India, rather than setting up their own. In addition, Nirmal Bang said that Bharti Infratel’s interest costs could fall, as it will not have to raise fresh debts for its future capital expenditures. The brokerage estimated the fair value of Bharti Infratel stock at 278 rupees per share.

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